The Foundry Company May Become Direct Threat to TSMC, UMC, Say Industry Observers

The Foundry Company (TFC), a joint-venture between Advanced Micro Devices and Advanced Technology Investment Company, will eventually become a threat to such companies as Taiwan Semiconductor Manufacturing Co. (TSMC) and United Microelectronics Corp. There are already talks in the industry that TFC may not only start producing ATI graphics processors, but will also steal other clients from its rivals.

Many Customers May Jump to TFC, None Has Officially Committed

Industry watchers expect TFC’s contract semiconductor manufacturing business to put Nvidia, Broadcom and Qualcomm on its customer list in addition to AMD itself with its central processing units and ATI Radeon graphics processing units, a news-story by China Economic News Service claims. All of these companies have their products produced at TSMC, whereas ATI and Nvidia also utilize UMC’s manufacturing capacities.

Analysts reportedly estimate that the Foundry Company has advantage in terms of technology for making microprocessors, a category of chips requiring high-end chip-making processes. Modern central processing units (CPUs) are produced using advanced process technologies that utilize features like SOI or high-k metal gate (HKMG) dielectric, whereas graphics chips or processors used in communication equipment are made utilizing bulk manufacturing technologies with low-k dielectrics. TSMC is also working to land orders from microprocessor makers, whereas UMC is rumoured to have orders to make Sun SPARC microprocessors. TSMC is expected to introduce its 28nm HKMG process technology sometime in 2010.

But there are disadvantages for TFC as well: its future customers will have to redesign their chips in order to make them at the company’s fabs and will also have to use new tools to develop new processors. The Foundry Company is a part of IBM bulk [process technology] alliance, hence, if IBM-led fabrication processes are better than those of TSMC or UMC, then the latter are endangered, but if not, TFC will have issues finding new clients.

None of the potential clients, except AMD, has officially stated that it might be interested in producing its chips at fabs operated by the Foundry Company.

TFC’s Ability to Provide Services Unclear

In addition, the Foundry Company will have to start providing certain services to its clients and there could be certain issues, at least immediately. AMD said that the company’s assembly, test, mark and pack (ATMP) assets will not become a part of The Foundry Company, but will remain at AMD. The chipmaker said that since AMD’s AMD’s ATMP operations were specifically tailored for its microprocessor business and thus were better to stay with AMD.

“Most semiconductor foundry companies offer outsourced assembly test capabilities to their customers and The Foundry Company is planned to follow a similar model as part of its service offering,” an AMD's statement with security and exchange commission (SEC) reads.

AMD indicated that it would be working to standardize its ATMP assets to support a broader range of semiconductor products in the coming months, including its own graphics products.

“There are no specific plans at this time to sell the A/T assets of AMD,” it was said.

As a result, TFC will not be able to provide at least certain services to its clients, which means that there will be less reasons for the aforementioned companies to switch TSMC for the newly-created foundry.

Margins Are Already Thin in Foundry Business

Some analysts indicated that many integrated device manufacturers (IDMs), such as AMD, have branched out into foundry services, but none of such spin offs has become profitable. In fact, even large contract semiconductor manufacturers, such as Chartered Semiconductor, SMIC and UMC have very thin profit margins, besides, they fight fiercely with each other in order to achieve maximum utilization rates for their fabs.

TSMC – the world’s largest and most important contract maker of semiconductors – remains profitable, but it has many advantages over its rivals, many of which include leading-edge services.